China and Indonesia: The Sweet and Sour Relationship

 

This is a sequel to my previous article. I initially intended to include these thoughts there, but I feared burdening readers with too much at once.

I honestly think Indonesia's present situation reflects the return of a Suharto-era mindset – embodied by President Prabowo Subianto.

Prabowo's Suharto-Era Baggage

During the New Order, Prabowo was a star. As Suharto's son-in-law (he married Siti Hediati Hariyadi in 1983; they divorced in 1998, the same year Suharto fell), he enjoyed direct access to the centre of power and patronage. He was not merely a general but a member of the "Cendana" family—named after Suharto's residential street. That proximity, however, also became his vulnerability.

When Suharto collapsed in May 1998, Prabowo was dismissed from the military and briefly fled Indonesia.

The divorce itself is telling. It occurred during the chaotic months of Suharto's fall and is widely seen as a political necessity – the Suharto name had become toxic. This event forced Prabowo to begin his long, difficult rebranding as a nationalist leader independent of his former father-in-law.

Yet while the family tie is gone, the professional and psychological imprint remains.

Prabowo embodies the Dwifungsi (Dual Function) era, when the military held formal, powerful roles in politics, social affairs, and the economy. His nationalism is old-school: territorial-integrity-first. Authoritarian tendencies linger, as does economic nationalism. He has criticized the neoliberal, open-market policies that emerged after 1998, and his brand of resource nationalism – insisting on self-sufficiency, opposing foreign ownership of key assets – echoes the crony-capitalist, state-controlled model of the late Suharto years, albeit without the same family conglomerates.

Still, after the 2019 election, when he joined Jokowi's cabinet as Defence Minister, Prabowo began rebranding. He ran for president with Jokowi's son as his running mate, explicitly tying himself to Jokowi's popular, development-focused, democratic, and relatively moderate platform.

That calculation has since unravelled. After his election victory, Prabowo has become his own man. Much of the Jokowi influence has faded, including the sidelining of his vice president to politically insignificant roles. He is already restoring the military to a larger, more respected role in national affairs than it held under Jokowi.

Formative Years Abroad
Prabowo's father, Soemitro Djojohadikusumo, was a prominent opponent of President Sukarno and went into self-exile. The family moved frequently during Prabowo's childhood:

• Elementary school in Singapore (1957–1960)
• School in Hong Kong (1960–1962)
• Junior high at the Victoria Institution in Kuala Lumpur (1962–1964)
• Later schooling in Zurich and London
• As a young army officer, he attended the Singapore Institute of Management

His professional formation, however, remained tied to the Suharto era. He trained at the National Military Academy (1970–1974) and rose rapidly through the elite inner circle. In the 1980s, as a captain in Kopassus (the army's special forces), he attended the Special Forces Officer Course at Fort Benning, Georgia.

(Irony: Despite his American training, Prabowo was banned from entering the United States after Suharto's fall, due to alleged human rights violations related to the kidnapping of activists and events in East Timor. That ban has since been lifted—he has visited as Defence Minister and now as President.)

His formative years were international, yet the political and military culture that shaped his adult worldview remains rooted in Suharto's New Order. And like Suharto, Prabowo knows he can extract wealth from local Chinese for Indonesia – and believes he can also corner mainland China geopolitically.

Chinese Indonesians: Convenient Scapegoats, Convenient Suckers?
To assess this claim, we need history.

A Millennia-Long Presence
Chinese presence in the Indonesian archipelago spans over two thousand years. The earliest interactions were commercial, dating to the Han Dynasty (206 BCE–220 CE). The first documented Chinese arrivals were Buddhist monks traveling trade routes: Fa-Hien stopped in Java in 413 CE; I-Tsing lived in Srivijaya (Palembang) for years in the 670s–690s.

The first permanent Chinese settlement is believed to date from the late 13th century. By the 15th century, distinct, continuous communities flourished. According to a Sundanese manuscript, Chinese migrants arrived near the Cisadane River (present-day Tangerang) around 1407—the Benteng ("fortress") Chinese, one of the oldest continuous communities. Lasem in Central Java is another ancient site; a translator for Admiral Zheng He arrived there in 1413 and found a thriving Chinese community.

The Kingdom of Demak
The Demak Kingdom—the first Islamic sultanate in Java – was founded around 1478 by Raden Patah. Javanese tradition holds that he was a nobleman descended from the last king of Majapahit, granting Demak legitimacy as successor state. Some accounts, however, claim he was a remnant of Zheng He's entourage (Cek-ko-po) or a half-Chinese named Jin Bun, son of Majapahit's last king and a Chinese concubine. I tend to disagree: Raden Patah was thoroughly Muslim, not Hindu.

Regardless, his Chinese cultural connection is undeniable. The Wali Songo (nine saints) who helped establish Demak also had strong Chinese ties – one, Sunan Gunung Jati, journeyed to China, married a Ming princess, and founded the kingdom of Cirebon.

That said, Chinese heritage does not automatically translate into pro-China sympathies. The current leadership in Taiwan is a case in point. The historical detail above is merely anecdotal.

Colonial Era: Racial Hierarchy
The Dutch East India Company (VOC) transformed the Chinese community from independent traders into a managed, exploited colonial underclass. The Dutch encouraged Chinese immigration, viewing them as skilled artisans and crucial economic intermediaries between colonizers and native Javanese. Chinese were given roles as tax collectors, opium farmers, and monopoly managers.

Batavia (Jakarta) grew from a few hundred Chinese in 1619 to over 10,000 by 1740. Fearing rebellion, the Dutch ordered a massacre in 1740, killing an estimated 10,000 ethnic Chinese—their bodies dumped into the city's canals. In the 19th century, massive numbers of laborers (coolies) were contracted from southern China to work tin mines (Bangka, Belitung), gold mines (West Kalimantan), and sugar plantations.

Suppression Across Eras
The systematic suppression of Chinese Indonesians was deliberately engineered. The Dutch used divide et impera—a racial hierarchy with themselves at the top, "Foreign Orientals" (Chinese, Arabs) in the middle, and pribumi (native Indonesians) at the bottom. Chinese were confined to Pecinan (Chinatowns), forced to carry passes, and made visible agents of colonial extraction.

After independence, colonial structures evolved:

• 1946: Over 650 Chinese killed in Tangerang during the National Revolution.
• Sukarno era: "Ali Baba" policies forced Chinese owners ("Baba") to have native Indonesian ("Ali") as public-facing partners. In 1959, non-citizen Chinese were banned from rural businesses—tens of thousands relocated or left.
• 1965–66 massacres: After a failed coup, the military blamed the PKI and, by extension, China. Over 500,000 (some say 1 million) killed; an estimated 30,000–300,000 ethnic Chinese among them.
• Suharto's New Order: Forced assimilation (pembauran). Chinese-language schools and media banned. Chinese New Year (Imlek) forbidden. Chinese pressured to adopt Indonesian names and carry special citizenship booklets.
• May 1998 riots: After the Asian financial crisis, Suharto's dying regime scapegoated ethnic Chinese. Over 1,200 died (mostly in fires); over 100 Chinese women documented as victims of systematic rape.

Core causes across all periods boil down to economic envy (Chinese control ~70–75% of private economy despite being 2–3% of population). The other is political scapegoating. An unresolved debate over what defines an "Indonesian" – assimilation versus pluralism.

Post-1998 reforms repealed discriminatory laws, recognized Confucianism, and declared Chinese New Year a national holiday.

(When I was there in mid-2000 prospecting land for oil palm, native Indonesians had become welcoming to regional investors (Malaysians, Singaporeans). Mainland Chinese had not yet arrived in force.)

Prabowo: A New Suharto?
Indonesia's government is short of money. It is now promoting the Danantara Patriot Bond – trying to leverage longstanding relationships with the nation's wealthiest conglomerates to fund development. Ethnic Chinese conglomerates dominate the upper echelons of the economy. Naturally, they are the primary targets.

The bond carries an interest rate of just 2% (benchmark ~5.8%) to finance national strategic projects. In the first round, USD 3.1 billion was raised from 46 prominent tycoons—40 of them ethnic Chinese.

From Suharto's cukong system to Jokowi's requests for new capital (Nusantara), successive governments have relied on wealthy conglomerates to finance strategic projects. In return, these conglomerates receive political goodwill, protection, and privileged access to licenses and state contracts.

Why do they comply?

• Regulatory dependence: Their core businesses (pulp and paper, property, petrochemicals, consumer goods) operate in heavily regulated sectors. They need state approvals for land, environmental licenses, and permits.
• Political vulnerability: As a minority with immense economic power, Chinese-Indonesian tycoons have historically been scapegoated. Maintaining visible cooperation with the sitting administration is strategic self-protection.
• Pragmatic nationalism: Prabowo's economic nationalism is pragmatic, not ideological. He partners with the established capitalist class rather than seizing assets. 

Voluntary Investment or Coercion?
Officially, it is a patriotic call. But context suggests powerful expectation. In March 2025, President Prabowo met with seven of the "Nine Dragons" tycoons at the presidential palace to directly ask for their help. For business leaders whose empires rely on state goodwill, such a high-level request carries immense weight. As one analyst put it, participation is simultaneously an investment, a signal of loyalty, and a hedge against political risk.

The bond's 2% interest rate—far below market returns—confirms that primary motivation is not financial gain. This is a "soft, domestically sourced credit channel wrapped in nationalist symbolism."

Indonesia's Fiscal Squeeze
Based on official data from April–May 2026, Indonesia faces significant budget pressure from two major programs:

• Free Nutritious Meal (MBG) program: Prabowo's flagship initiative, allocated Rp 335 trillion for the year. Spending is front-loaded—Rp 36.6 trillion (USD 2.17B) absorbed by late February 2026 as beneficiaries surpassed 60 million.
• Energy subsidies and compensation: Rp 381.2 trillion (USD 22.61B).

Fiscal reserves (SAL) are only USD 25–27 billion. Finance Minister Purbaya Yudhi Sadewa has confirmed that even with oil at $100/barrel, the deficit can be kept around 2.9% by using reserves. But sustained high prices could breach the 3% ceiling – which is why the government is trimming MBG and asking all ministries to find efficiencies.

Conclusion: Where Else to Turn?
The pattern is familiar. When Indonesia faces fiscal pressure, it turns first to its ethnic Chinese conglomerates for capital – offering political protection in return. When the economy tightens further, and public frustration rises, those same Chinese Indonesians become convenient scapegoats. Prabowo has inherited Suharto's playbook, not just his worldview.

And what of mainland China? Prabowo believes he can extract investment and geopolitical deference while simultaneously playing the nationalist card at home.

Whether China will accept the role of "convenient sucker" remains an open question. But for Chinese Indonesians – caught between state extraction and popular resentment – the sour taste is already familiar.

End